Thank you to @intjudo for introducing Nu Holdings in the post Market inefficiency in Brazilian fintech? - #7 by intjudo. I have been researching this Latin American bank over the last few days and was impressed. I’m leaning toward selling some TTD and Pure Storage to free up funds to buy it. Below is my analysis; if you see flaws or feel I need to include something, please let me know so I can become more intelligent about Nu.
CEO and Founder - David Velez, born in 1982 (age 42) is their CEO and founder. Born in Columbia, his family fled to Costa Rica when he was 9 to escape violence caused by warring drug cartels. He was educated at Stanford. Before starting Nubank, he did stints in investment banking at Morgan Stanley, private equity at General Atlantic, and venture capital at Sequoia. He started Nubank after seeing that 5 Brazilian banks controlled 80% of the market and charged high fees for basic financial products. He saw an opportunity for disruption. I watched both videos of him that were recommended in previous threads. He comes across as charismatic and smart yet genuine and humble. He still seems hungry and feels like he’s just getting started. I like founder led companies and feel good with him at the helm.
Revenue - Currently growing at 63.5% YoY and 14% QoQ. Growth has been decelerating as they grow in size, but 60% is still great for a company with $7B in revenue in the past year.
Customers - Currently at 89.1M, which is 26% growth YoY. There are ~650M potential customers in Latin America. They have good market penetration in Brazil and have just entered the Columbian and Mexican markets. Their future TAM looks good. They have a Net Promoter Score of over 90, one of the highest in the world for a consumer company, let alone in financial services.
Net Income - $303M in most recent quarterly results (Q3 2023). Net Income has been accelerating every quarter so far in 2023.
EPS - $0.06 in the most recent quarter. They have been consistently profitable in 2023, growing EPS every quarter.
PE - At the current stock price of $9.26, the trailing PE is 121.24, which concerns me. The consensus estimate for 2024 is $0.34, which gives a PE of 27.2. Still high for a banking stock, but few are growing at 60%.
Efficiency Ratio - (How much they spend to make a dollar). Nu’s efficiency ratio is 35%, which is amazing when you consider the average efficiency ratio for the top 100 banks, which is 59%. They have been driving this number further down every quarter in 2023.
Biggest Risks - Deteriorating loan credit quality could be a risk. Nu has developed good underwriting models because their first product in Brazil was a credit card, and Brazil doesn’t have a FICO score they can leverage. Therefore, they had to develop a good underwriting discipline to make their credit card product profitable. Would these same models apply to Mexico and Columbia as they expand in those markets? Something to watch. There are also macro risks, given that Latin America is a developing market with more geopolitical volatility.